November 2012 Business Outlook Survey

Firms responding to the November Business Outlook Survey reported declines in business activity this month following the disruptive effects of Hurricane Sandy on the region. The survey’s indicators for general activity, which had shown improvement in October, fell back into negative territory this month. Firms reported slight declines in shipments, employment, and hours worked. Indicators for the firms’ expectations over the next six months were near their levels in the previous month, but expectations for future employment and capital spending have weakened in the last two months.

Indicators Suggest Diminished Activity

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, to a reading of ‑10.7. The fallback of the general activity index followed a single positive reading in October that was preceded by five negative monthly readings (see Chart). Nearly 32 percent of firms reported declines in activity this month, while 21 percent reported increases. The demand for manufactured goods, as measured by the current new orders index, declined 4 points from last month and remains in negative territory. Shipments also fell this month: The current shipments index fell 7 points, to ‑6.7. Declines in inventories were also more widespread this month; 31 percent of firms reported declines compared with 21 percent in October.

Labor market conditions at the reporting firms remained weak this month. The current employment index, at ‑6.8, was slightly improved from its negative reading in October (‑10.7) but has remained negative for five consecutive months. The percentage of firms reporting decreases in employment (20 percent) exceeded the percentage reporting increases (13 percent). Firms also indicated fewer hours worked: The average workweek index was virtually unchanged but posted its eighth consecutive negative reading.

Price Indexes Drift Higher

The indexes for prices paid for purchased inputs and for prices received for respondents’ own manufactured goods moved higher this month. The prices paid index increased from 19.0 to 27.9, but the increase was attributable to fewer firms reporting lower prices rather than more firms reporting price increases. With respect to their own manufactured goods, the percentage reporting an increase in product prices (16 percent) was greater than the percent reporting a decrease (10 percent). The prices received index increased marginally, from 5.4 to 6.3.

Six-Month Indicators Are Mixed

Most of the survey’s future indicators suggest modest optimism among the reporting manufacturers. The future general activity index fell modestly from 21.6 to 20.0 (see Chart). The percentage of firms expecting increases in activity over the next six months (43 percent) exceeded the percentage expecting decreases (23 percent) by a significant margin. The indexes for future new orders and shipments improved modestly, rising 3 and 7 points, respectively. The future employment index also fell from 8.0 to 4.2, its second consecutive month of decline. Firms’ expectations for future capital spending have also shown weakness in the last two months; the index registered its second consecutive negative reading.

In supplemental questions, firms were asked about disruption in business following Hurricane Sandy, which passed through the region in the final days of October (see Special Questions). The average number of days on which firms experienced reduced activity was 2.2. Nearly a third of the firms indicated that activity was reduced for three days or more. Out of the number of days on which activity was reduced, the average length of time that businesses were either shut down or severely crippled was 1.3 days.

Summary

The November Business Outlook Survey suggests that activity in the region’s manufacturing sector fell back this month. Firms reported declines in overall activity, new orders, shipments, and employment. But the influence of the recent storm in terms of lost production in the short run and reduced activity for longer periods was evident in firms’ responses to questions about the storm’s impact on business activity. The survey’s future activity indexes suggest that firms expect growth over the next six months; however, expectations for future employment and capital spending continue to show moderation.